Friday, August 17, 2012

Kiss of Death: CalPERS Investing in China Real Estate

Considering how perspicacious they were on their U.S. Real Estate*
this could mark the point of no return for the Chinese markets.
From Top 1000 Funds:

Funds chase the dragon

Institutional investors are turning their attention to Asia, with
CalPERS the latest large pension fund to announce a new foray into the
region.

America’s biggest public pension fund this week announced it would
invest $530 million in two new real-estate funds targeting investments
in China.

Despite concerns about a residential property bubble in China,
CalPERS’ chief investment officer Joe Dear says that the $238.2-billion
fund sees the urbanisation and income-growth trends in the country
underpinning the strength of its real estate.

Heading east
Faced with a laggard US economy and Europe slipping into a grinding
recession, large institutional investors are increasingly looking to the
Asian region for returns.
The Canadian Pension Plan Investment Board has a long-term
relationship with specialist listed-property fund manager, Goodman
Group.

Investments include industrial and logistically focused investment in
China, Australia and Hong Kong. The ongoing partnership has recently
been expanded to investments in greenfield sites in North America.
The $43-billion industry super fund AustralianSuper has also set its sights on Asia and, in particular, China....MORE

...Here are brief descriptions from various news sources of some well-publicized CalPERS real estate losses.
–LandSource: CalPERS paid $970 million in January 2007 for a
majority stake in a Lennar Corp. development on the 15,000-acre Newhall
Ranch north of Los Angeles. The project declared bankruptcy 15 months
later. CalPERS severed ties with the advisor that recommended the
investment,MacFarlane Partners of San Francisco.
–Stuyvesant Town and Peter Cooper
Village: CalPERS invested $500 million in the $5.4 billion purchase by
Tishman Speyer and BlackRock of 11,227 apartments on 80 acres in New
York City. The plan was to replace rent-controlled tenants with market
rents. But the courts objected, and the owners defaulted on a loan.
–Centerpoint: A CalPERS operative, CalEast, paid $3.4 billion
in January 2005 for the largest industrial landlord in the Chicago
area. An analyst told Forbes he thought CalPERS paid $900 million more
than the value of the property, apparently to get the Centerpoint
management team. CalEast value plunged in the economic downturn.
–East Palo Alto: CalPERS invested $100 million in a Page Mill Properties plan to upgrade 1,700 rent-controlled units
and charge market rents. Critics said 1,500 low-income tenants were
displaced. After a complex legal battle, the lender foreclosed.
–Columbus Center: CalPERS invested $91 million in a plan to build
condos, hotel rooms and stores over a section of the Massachusetts
turnpike in Boston, triggering a 13-year battle with neighborhood
opponents and 130 community meetings. Opponents want CalPERS to pay $4
million to $5 million to clean up the partially excavated site.
–Capitol Mall Towers: CalPERS invested $100 million in April 2006 in a proposal for twin 53-story condo towers
and a hotel in Sacramento, not far from CalPERS headquarters. As the
real estate bubble burst, CalPERS bought out the developer 14 months
later for an undisclosed sum and still owns the undeveloped block.
–Koin Center: CalPERS and a partner paid $109 million in 2007 to buy the bottom 19 floors of a landmark building in Portland,
known as the “mechanical pencil” because of its shape. Last July they
defaulted on a $70 million mortgage and gave up ownership.